100 Club: RWC fund managers cut US exposure

100 Club: RWC fund managers cut US exposure

The persistence of “muted” economic data coming from the US has caused the managers of the RWC US Absolute Alpha fund to lower their exposure to the market.

The vehicle can take bets on whether stocks go up – long positions – or fall – short positions – and managers Mike Corcell and Alex Robarts have reduced its net long position in the face of economic uncertainty in the US.

They thought much of the weakness in the GDP data from the first quarter, which showed the country’s economy contracted by 0.7 per cent, came mainly from adverse weather.

But the managers said there had not been “an acceleration in the manufacturing side of the economy” since the first quarter, suggesting the problem was not entirely weather related.

They have therefore trimmed some positions “given the more muted economic data”.

The net long position within the fund to the housing sector has been reduced, given both the sector’s exposure to underlying economic conditions and “the mixed margin commentary from homebuilders following [their] first-quarter earnings”.

Data released last week from the US Federal Reserve showed industrial output in the US continued to fall in May, driven by worse-than-expected manufacturing output. The 0.2 per cent contraction in industrial production last month largely came from the 0.2 per cent fall in the manufacturing sector, which had instead been expected to grow by 0.3 per cent.

The data meant US industrial output had fallen in each of the first five months of 2015, representing by far the worst start to a year for the sector since the end of the financial crisis.

Figures such as these have reinforced concerns there will not be as much of a rebound in US GDP, from the 0.7 per cent contraction in the first quarter, than many experts had hoped.

At the end of April, the RWC fund had an overall net long position of 18.1 per cent, and was made up of long positions totalling 47.9 per cent and short positions of -29.8 per cent.

The managers’ biggest net long bet was in the software and services sector, which was slightly more than 8 per cent of the fund’s net exposure, while the biggest net short position was in capital goods, at -5 per cent.

The fund’s limited net exposure to the US market has not allowed it to beat the S&P 500 index this year, in spite of US equities only achieving a very small positive return.

The RWC US Absolute Alpha fund has delivered 0.23 per cent so far this year, compared with an increase of 2.23 per cent in the index, data from FE Analytics shows. This return was after the vehicle suffered negative months in January, March and April.

However, since the US market peaked on April 10, the fund has delivered on its objective – recording a small positive return – while the S&P 500 has fallen by nearly 6.5 per cent.